Applied general equilibrium analysis and perspective on growth performance

Abstract

This paper focuses on growth accounting, the technique widely used to evaluate growth performance. In this paper we argue not only that recently developed applied general equilibrium techniques provide a tractable multisectoral framework as an alternative approach for analyzing growth performance, but that perspectives on the determination of growth can be quite different. The analytical structure upon which growth accounting is based is a one-sector model which excludes resource misallocation effects caused by changing institutional arrangements, and any attempts to incorporate these into the approach are inevitably ad hoc. We suggest that these may be important for understanding the behavior of economies over time because of recent work which suggests that there may be large costs associated with distortions which generate idle resources or wasteful resource use. These effects can lead to dramatically different policy implications in an analysis of growth performance compared to a traditional growth accounting approach. We illustrate our approach by examining growth experience in three countries: India, the United States, and the Soviet Union.